CONTENTS
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12 What will the Special Economic Zones do for the economy? 16 Once a squalid refugee camp, Jalozai to become a real estate development
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22 Naya Pakistan Certificates: undeserved special privileges for expats 28 HBL invests Rs500 million into its asset management subsidiary
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29 Sapphire goes all-in on serving Pakistani women’s clothing needs… and wins big 31 The birth, life, and death of the Lahore Parking Company
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34 Berger Paints: stagnant at best, losing market share at worst
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35 Din Textiles enters the weaving business 38 Pakistan’s young population has the skills and dedication to thrive despite Covid-19
WELCOME
Creating second-class citizens The biggest downside of the ruling Pakistan Tehrik-e-Insaf’s (PTI) obsession with Pakistani expatriates is that they have a tendency to bend over backwards to try to offer them incentives to move back to Pakistan or invest in the country. Those incentives – not available to resident Pakistanis – have the consequence of making resident Pakistanis second-class citizens in their own country. Our cover story this week explores the example of one such policy, where the government has decided to offer excessively lucrative certificates of deposits to expatriate Pakistanis while ensuring that these deposits are not accessible to anyone who lives and works and pays taxes in Pakistan. This policy is manifestly unfair and the government should revise it immediately. In our cover story, we explore some macroeconomic reasons as well as to why this is a bad policy: it is fundamentally the same thing as what former finance minister Ishaq Dar did during his tenure in office from 2013 through 2017, where he borrowed from foreign investors for the sake of financing consumption in Pakistan and keeping the rupee’s exchange rate against the dollar artificially high. Just because the PTI is asking Pakistani expatriates instead of foreign institutional investors does not make this policy any better.
We keep coming back to a series of the same bad ideas in Islamabad, and at this point is becoming painfully depressing to keep on having to critique the same thing – over and over again – in precisely the same manner, because nothing ever changes. We now understand a little more about what Khwaja Moinuddin meant when asked decades later how his Urdu play Taleem-e-Balighan remained as relevant as ever to Pakistani current affairs: “This is not any stroke of genius on my part. Pakistan just has not changed since I wrote the play!” What a sad commentary on the state of affairs that – just two years after taking office in the middle of a recession caused by Ishaq Dar’s obsession with financing consumption and deficit spending through foreign borrowing, the Imran Khan Administration is embarking on a policy path that does the exact same thing. When will we ever learn to move on? And when will we stop treating our own residents and citizens as better than second-class citizens in their own country? When will we start seeing them as the engines of growth that they can be?
Profit
Farooq Tirmizi Managing Editor
Executive Editor: Babar Nizami l Managing Editor: Farooq Tirmizi l Joint Editor: Yousaf Nizami Reporters: Ariba Shahid l Babar Khan Javed l Syeda Masooma l Taimoor Hassan Abdullah Niazi l Meiryum Ali l Hassan Naqvi l Shahab Omer Director Marketing: Zahid Ali l Regional Heads of Marketing: Muddasir Alam (Khi) Zulfiqar Butt (Lhr) l Mudassir Iqbal (Isl) l Layout: Ahmad Salahuddin l Photographers: Zubair Mehfooz & Imran Gillani l Publishing Editor: Arif Nizami l Business, Economic & Financial news by 'Pakistan Today' Contact: profit@pakistantoday.com.pk
FROM THE MANAGING EDITOR
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Readers Say PTCL has not subscribed to Mobile Phone Spectrum of 4G/LTE in the Spectrum Auction by the regulatory authority. Hence the network of Ufone is not compliant to Digital Networks, Upgradation to 5G when offered. PTCL LandLine network is not Digitised. Hence it has to struggle with the conventional old aluminum insulated wire not compliant for Broadband. The private Sector companies offer OFC PON Digital network in most parts of Pakistan. Secondly the PTCL properties telephone exchanges are attached are not upgraded over years on the Digital Network. Most of the internet customers subscribe to hundreds of licensed ISP’s catering to education, masses, businesses are reasonably priced, standardised, Digital Networks of PON OFC network also very competitively priced. The telephone exchanges & related properties are still occupied by PTCL and not returned to the Government. Lastly in view of the technology infrastructure of PTCL in que is wholly analog, as PTCL did not participate in the launch of 5G. The era of 5G is very important which is done by Zong. Trust PTCL should show its seriousness by investment in the networks for 5G, and related trails to the Government. Digital Networks will help safety of humans as road accidents, surveillance safety, emergencies, etc., all responsibility of PTCL. Apropos: PTCL wants to sell Ufone. Here’s why that’s a good idea Haroon Rashid, Website The only good thing that will come out of this is that a little less money of Pakistani public will be wasted. Government sector is a burden on the economy since it lives off parasitically on the private sector. Apropos: PTCL wants to sell Ufone. Here’s why that’s a good idea Muhammad bin Jamil, Facebook They do realize that people use supercards mostly due to unlimited ptcl minutes? Ufone already has the worst 3G services in Pakistan. Ufone will effectively end. Apropos: PTCL wants to sell Ufone. Here’s why that’s a good idea Usman Khan, Facebook
facebook.com/Profitpk twitter.com/Profitpk linkedin.com/showcase/13251020 profit.com.pk profit@pakistantoday.com
HOW TO CONTACT
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By reading your article, it seems that you have been given this lead by someone who might be the beneficiary of this article, such as those that have Wärtsilä technology based power plants. How can you compare the outcome of two different technologies? The Wärtsilä engine and designed plant vs MAN engine and designed plant is a complex subject. It is not an apple to apple comparison. Apropos: Why renegotiating the IPP contracts may cause more problems than it solves Maqsood, Website
Best of luck and wishes. May this company create jobs and play a vital part for Pakistan steel industry and economy, with latest Manufacturing process. Appropos Agha Steel plans to tech-disrupt the Pakistani stell industry Ali Asghar, Website What can’t be denied is that these IPP agreements are fraudulent in that the government is being charged excessively for electricity generation that is based on potential capacity of a plant and not its actual production. If the government has actually got the IPPs to the negotiating table it’s because the evidence in the recent IPP report is too incriminating for them to resist. Let’s see what comes out of these negotiations rather than putting out pure opinionated speculation. Apropos: Why renegotiating the IPP contracts may cause more problems than it solves Riaz, Website This article lacks substance in analysis because it makes certain assumptions and then ignores some. Important facts about the 2015 policy based IPPs have been ignored. One of these is that the Chinese government has consented to revise all PPAs in line with the revised agreements for the 1995 and 2002 policy based IPPs respectively. Another thing that the story repeatedly mentions is establishing bad precedents. This is totally wrong. A government must not think about its commitments to big companies, it must think about its people, not investors. These investors are abusing the leverage they have and the government at some point has to step in and take strong action. So it is a good step by the government, and all must know that any good government must make moves like this. If Pakistan can renegotiate any agreement for the sake of public interest, we should. This is all despite the fact that the government could have negotiated this all much better. Apropos: Why renegotiating the IPP contracts may cause more problems than it solves Myr, Website Pakistan’s power problems are on the distribution side. Also, Why would any ipp want to invest now when the whole irr calculation can be tossed out of the window by renegotiation. Best case for Pakistan is to start electricity trading with India like Bhutan, Bangladesh and Nepal. Apropos: Why renegotiating the IPP contracts may cause more problems than it solves @panditbikaneri, Twitter
COMMENTS
IN BRIEF
$1 billion
Pakistan will this week begin the process of selling unused telecom spectrum in an auction it hopes will raise around $1 billion and enhance network capacity, said three senior government officials familiar with the matter. Nielsen has reportedly shuttered its retail measurement service (RMS) business unit in Pakistan. In an internal email, Nielsen Managing Director for Arabian Peninsula and Pakistan Andrey Dvoychenkov wrote that Nielsen had thoroughly evaluated the business and the ability to deliver growth in the long run.
“Debt relief is one of the quickest ways to create fiscal space for developing countries. Therefore, in April, I called for a global initiative on debt relief. Subsequently, Pakistan initiated discussions on this matter at the United Nations and co-led the discussion group on debt vulnerability.” Prime Minister Imran Khan, addressing a UN summit, called for one-year extension in G20 debt relief.
Rs 3.84 billion
The National Accountability Bureau (NAB) managed to make recoveries of Rs3,841.902 million or Rs3.84 billion from corrupt elements during 2019 and deposited into the national exchequer. Out of this recovered amount, Rs3,827.753m were recovered through plea bargains while Rs14.149m had been recovered through voluntary returns, says a report issued by NAB.
Rs 1000 billion
Surpassing its targets, the Federal Board of Revenue (FBR) managed to collect Rs1,002 billion during the period under review, as against the target of Rs970 billion. The tax department had collected Rs593bn during the first two month of FY21, while collection in September stood at Rs408bn, as against the target of Rs418 billion.
Veon, a leading global provider of connectivity and internet services, has announced that its partner in Pakistan, the Dhabi Group, has exercised its put option to sell Veon its 15pc shareholding in Pakistan Mobile Communications Limited (PMCL), the operating company of leading mobile operator, Jazz.
“It is alarming that Pakistan’s debt and liabilities have surged by Rs14.4 trillion in the last two years, up from Rs29.9 trillion in June 2018 to a whopping Rs44.3 trillion. Public debt is breaking all previous records, inflation is highest in the region, and circular debt remains one of the biggest challenges in the power sector. Where is our economy heading?” Senator Sherry Rehman
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By Shahab Omer
T
he old American adge from the early 1990s, ‘It’s the economy stupid,’ holds true everywhere. Every modern government that has ever come into power has come with the express claim that they will fix the
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economy and as a result bring prosperity. Pakistan is no different. The economy, after all, is simply the system through which a society structures how goods and services are consumed and provided. This is basic A level economics, but it is important to understand. Most places have strict rules by which the economy operates, but these rules are not always conducive to economic growth.
In Pakistan, one of the answers that many have touted as game changing are Special Economic Zones (SEZs). SEZs are designated areas in which the business and trade laws are different from the rest of the country. SEZs are located within a country's national borders, and their aims include increased trade balance, employment, increased investment, job creation and
in partnership with China, but there are also challenges in effectively managing the SEZs. Profit, takes a look.
SEZs in Pakistan
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effective administration. Again, this is the textbook definition of SEZs. In Pakistan, the reason they are even more important are because they are at the center of the China Pakistan Economic Corridor (CPEC). The SEZs along CPEC routes and at crucial points, particularly in the North, not only have different laws, but have been massive undertakings in setting up infrastructure, housing, power, markets, communication systems, and anything else that might be needed to turn these SEZs into juggernauts of economic growth. These SEZs are supposed to give Pakistan a new industrial identity, in which the country is supposed to stand side by side with Chinese companies to embark on exciting new economic activities in these zones. There are a number of opportunities available for Pakistan to capitalize on with these zones, especially
very district of Pakistan has an industrial estate or area with infrastructure that offers a variety of benefits. In Punjab, there are 26 industrial estates, 30 in Sindh, seven in Balochistan and 12 in Khyber Pakhtunkhwa. The problem on evaluation, however, is that these estates are failing miserably. They have been badly placed in remote areas, and because there are no incentives to move there, a lack of skilled labour and basic facilities plagues these estates. These estates were an early precursor to SEZs. Some of them have been more successful, mostly the ones in larger cities that have significant populations and facilities. Perhaps the best example is Sialkot, which is famous for its sports goods and surgical instruments. The reason Sialkot has become famous for these products is exactly because it is a special industrial estate. The same goes for Faisalabad and textiles and engineering related products in Gujranwala. Now, SEZs are planning to improve on the industrial estates model. But this is not the first time that SEZs have tried to become a thing in Pakistan. The culture of import was first promoted in Pakistan early in the country’s history, with the 1960s being the first era where import was King. Then, in the 1980s, Pakistan finally turned its attention to export growth. The first SEZ in Pakistan was established in Karachi in 1983, and by 2005, the country had seven active SEZs. However, despite the passage of time, these SEZs were not able to increase employment opportunities and exports as much as they should have. The biggest hindrance in their being more effective was political instability, since SEZs granted under one government were looked at suspiciously by the next government. Add to this a poor law and order situation, unavailability of infrastructure and uninterrupted supply of electricity and lack of skilled manpower, and you had SEZs not really working out. Now, many of these issues have improved over the past decade. We have also overcome some of the major difficulties to the development of SEZs and steps are being taken to further improve the situation. According to Dr. Suhail Saleem, who is CEO of the Punjab Board of Investment and Trade (PBIT), the latest effort to make SEZs a
major driving force in the economy will be revolutionary because they are going to be based on public private partnerships. Dr Saleem explained that the SEZ Act is not new, having been promulgated and also notified nearly a decade back in 2012. The law provides SEZs to be set up by the Federal or Provincial Governments themselves or in collaboration with the private sector under different modes of public-private partnership or exclusively through the private sector. The fiscal benefits under the SEZ law include a one-time exemption from custom duties and taxes for all capital goods imported into Pakistan for the development, operations and maintenance of a SEZ (both for the developer as well as for the zone enterprise) and exemption from all taxes on income for a period of ten years. For any business looking to set up at low cost, this is a great deal. These SEZs according SEZs in Pakistan currently: Karachi Export Processing Zone (Karachi) Risalpur Export Processing Zone Sialkot Export Processing Zone Gujranwala Export Processing Zone Khairpur Special Economic Zone Rashakai Economic Zone Gadoon Economic Zone Hathar Economic Zone. Industrial Parks in Pakistan: Rachna Industrial Park (Lahore) Marble City (Lahore) Textile City (Port Qasim) Newly established industrial estates: Value Addition City (Sheikhupura-Faisalabad Expressway) M3 Industrial City (Faisalabad) Quaid-e-Azam Apparel Park (M-2 Lahore). Nine SEZs proposed in Pakistan under CPEC: Rashakai Economic Zone, M-1 Nowshera, Dhabeji Special Economic Zone Bostan Industrial Zone Allama Iqbal Industrial City, Faisalabad ICT Model Industrial Zone, Islamabad Industrial Park Pakistan Steel Mills Port Qasim Mirpur Industrial Zone AJK, Mohmand Marble City Moqpondass SEZ Gilgit-Baltistan.
SPECIAL ECONOMIC ZONES
“One of the biggest problems for foreign investors in Pakistan in the past has been land acquisition, which has been plagued by fraud. SEZs solve foreign investor land acquisition issues. If we talk about Allama Iqbal Industrial City, an acre is being sold there for RS 9.5 million and this land will also be available on installments.” Dr. Suhail Saleem, CEO of the Punjab Board of Investment and Trade (PBIT)
to the act need to be set up in an area of at least 50 acres, with no maximum limit. Similarly, the benefits for developers are one time custom duties exemption on plant and machinery and income tax exemption for five years. There is als a one time custom duties exemption on plant and machinery and an exemption of 10 years on income tax for units starting production by 2020. However, one of the major problems has been that most investors have only recently become interested in investing in Pakistan. And according to the act, any businesses setting up before May of this year would get a 10 year tax exemption. However, for anyone setting up after, the tax exemption is only for five years. Most businesses do not even break even in five years, making the offer less attractive. It is for this reason that the government has recently amended the act to allow a 10 year income tax holiday for people investing even after 2020. “This is clearly an attractive offer, and because of this, the private sector is really taking up the offer. We have been receiving applications, and various developers are coming here,” says Dr Saleem. “In the next few days, a private developer will also be declaring SEZ in the name of JW. Its total area is 230 acres while it has already completed two of the three stages of approval. Now all that is left is to get approval from the Prime Minister's Secretariat.”
As Dr Saleem explains, the advantage of setting up a private sector industry in an SEZ is that on the one hand they will be able to avail all the facilities in the zone, and on the other hand, the private developer will also try to talk to foreign investors and establish foreign industries in their zones. “The result will be that while the government is making efforts for foreign investment, the private sector will also make efforts and a large investment will come to Pakistan,” he says. “One of the biggest problems for foreign investors in Pakistan in the past has been land acquisition, which has been plagued by fraud. SEZs solve foreign investor land acquisition issues. If we talk about Allama Iqbal Industrial City, an acre is being sold there for RS 9.5 million and this land will also be available on installments.” But this poses another problem. Should the government be trusting private sector industrialists to negotiate with foreign investors essentially on their behalf? After all, these local industrialists will have their own interest in mind, and rightfully so. What is stopping them from buying this land for SEZs and then selling it to investors at exorbitant rates? Because once the land is bought and registered as SEZ land, it will remain so, and the new buyer will get the benefits from it. “Our goal is to promote industrialization in the country. Any investor who buys land in
“We are consulting stakeholders to identify and resolve issues in industrial zones and steps will be taken in consultation with them. The Punjab government is working on 13 special economic zones in the province and these SEZs will change the destiny of the country and the nation” Mian Aslam Iqbal, Punjab Minister for Industry and Investment
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SEZ will have to start construction there in six months. However, no investor will be able to sell the land after buying it,” explains Dr Saleem. “Even if he has to sell, he will sell the whole industry or factory so that the business can continue. PBIT is playing an active role as a liaison between Federal BOI (Board of Approvals) and Industrial Estate Development Companies in Punjab and also assisting private developers to complete their application/proposal of Industrial Parks for the declaration as SEZ.”
Will these SEZs really be beneficial?
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n paper, it sounds good, almost too good, which is perhaps why it is not surprising that there are some murmurings of discontent about how these SEZs will operate. One senior official of the Federal Board of Investment on the condition of anonymity told Profit that the establishment of SEZs would undoubtedly be beneficial, but would also pose a number of challenges for the government and policy makers to pay more attention. “To reap the full benefits of SEZs, we need to transform our human, financial, tech-
“Recently, three of our industrial estates have been declared as SEZs, Bhalwal Industrial Estate, Rahim Yar Khan Industrial Estate & Vehari Industrial Estate. Similarly two of our industrial estates are already in process for SEZ declaration, Quaid-e-Azam Business Park (QABP) & Bahawalpur Industrial Estate respectively Syed Nabil Hashmi, Chairman of Punjab Industrial Estates Development and Management Company (PIEDMC)
nical and institutional resources. Similarly, location plays an important role in the success of any SEZ which should not be politicized. The location of the SEZs should be chosen in such a way that the industrialist can easily prepare, import, export and produce the raw material,” said the source. “In fact, Pakistan's human resources are not yet highly skilled at working in SEZs, nor is it fully familiar with the use of Chinese technical equipment and machines. Therefore, they may not be able to get the full employment opportunities created in these SEZs, which is why we hear such news that the important work in these SEZs will be done by Chinese labor,” they went on to say. “The government should also play a full role in teaching technical skills to the people here instead of making claims.” The source went on to detail that it is essential to harmonize the policies of the Chinese SEZs and the SEZs here, and there is still a need to implement policies such as starting a business at a lower cost and facilitating business. In this regard, the government should formulate long-term policies and show consistency in them, while in order to achieve the objectives of the industries which have to
increase exports in the SEZs. “Our government agencies and departments are not yet fully experienced in managing these industrial zones and dealing with foreign investors and this attitude could be an obstacle in achieving the goals of SEZs. Therefore, the government should also work to enhance the capacity of the departments and agencies which are dealing with finance, economy and administration of SEZs, especially the all the Board of Investments of Pakistan. Technology is changing and accelerating day by day all over the world while we are still far behind in the race for technology. If we are to reap the benefits of foreign economies, we will have to increase the number of related and supply firms and shift appropriately sized industrial groups to SEZs.” Syed Nabil Hashmi, who is the Chairman of Punjab Industrial Estates Development and Management Company (PIEDMC), is quite confident about the situation of SEZs in Punjab. Speaking to Profit, he informed about the development of SEZs in Punjab during the last two years. “Recently, three of our industrial estates have been declared as SEZs, Bhalwal Industrial
Estate, Rahim Yar Khan Industrial Estate & Vehari Industrial Estate. Similarly two of our industrial estates are already in process for SEZ declaration, Quaid-e-Azam Business Park (QABP) & Bahawalpur Industrial Estate respectively. However, development works have been initiated at Quaid-e-Azam Business Park & Bahawalpur Industrial Estate.” Meanwhile Punjab Minister for Industry and Investment, Mian Aslam Iqbal, informed Profit that he has directed the development work in the industrial centers be completed quickly, \ and he is also liaising with the federal government to ensure that issues like electricity, gas and other issues in industrial estates can be resolved immediately. “We are consulting stakeholders to identify and resolve issues in industrial zones and steps will be taken in consultation with them. The Punjab government is working on 13 special economic zones in the province and these SEZs will change the destiny of the country and the nation,” he said. “Billions of rupees are being invested in setting up new industries in industrial zones and establishment of industrial estates will create millions of jobs.” “Quaid-e-Azam Business Park is a milestone in terms of industrial development. The industrial centers to be built on thousands of acres in South Punjab will bring an economic revolution in the region. I have also instructed PIEDMC to work actively for the speedy completion of the development work of the industrial estates.” The sustainable solution to the economic and employment problems facing the country is the promotion of industrial and commercial activities, which will not only reduce the difficulties of the common man in terms of employment, but will also have a positive impact on the overall national economy. SEZs play an important role in the economic development of any country and if we are to benefit from them, it is important that there should be no bureaucratic hurdle for the development of SEZs and the ministries of all the provinces should work as a team to resolve all the issues in these SEZs. n
SPECIAL ECONOMIC ZONES
By Aziz Buneri
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t the beginning of the millennium, the world was at the precipice of a new era. The Berlin Wall had fallen, Thatcher and Reagan had faded into the shadows, the
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Cold War was over, and the Soviet Union was defeated. Then, the catastrophic tragedy of 9/11 happened, launching the world into the War on Terror. Pakistan was quick to join America in this war, and one of its major frontiers would be Pakistan’s Western neighbour, Afghanistan. But even as a new world was emerging
from the ashes of 9/11, a dark reminder of another alliance between Pakistan and the United States still loomed in all of its squalid misery. Almost 7,000 miles away from New York, where the World Trade Center buildings had been attacked on September 11, the Jalozai refugee camp was still housing thousands of Afghan refugees from a different
“The space of the Jalozai camp was simply too small for the amount of people that were packed into it. People were crammed together and there was simply not enough space to dig the latrines that were required and to put in the shelters that were necessary” Mohammed Adar, UNHCR senior emergency officer misadventure between Pakistan and the USA in Afghanistan. The Jalozai refugee camp was at one point home to 80,000 Afghan refugees fleeing from the 1979 Soviet invasion of Afghanistan. Over the decades, it became famous for the putrid conditions its inhabitants had to suffer. Today, four decades after it was first set up, it is set to become Khyber-Pakhtunkhwa’s second largest housing scheme, stretched over approximately 1,200 acres. Where once lay a city of tents and prison-like conditions, tomorrow there will be houses with running water, electricity, and all the trappings of modern life. This radical transformation for a place that was once dubbed Pakistan’s ‘living cemetery’ marks the lifting of a great, dark shadow. It is a partial shunning of the shackles as Pakistan continues to come out of the War on Terror. How has the fate of Jalozai come to this? And what plans does the provincial government have for this place that has had a storied yet tortured past? Profit, investigates the history and prospects of the up and coming Jalozi housing scheme.
A fraught history
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n February 2002, the United Nations High Commissioner for Refugees (UNHCR) celebrated the closure of the notorious Jalozai refugee camp. The departure of the last 1,570 refugees to other camps located close to the border between Pakistan and Afghanistan marked what should have been an end to decades of the camp’s despondent living conditions. To understand the conditions at Jalozai, one has to understand the sheer volume of people that had been fit into a small amount of space. When the Soviets invaded Afghanistan, a flood of 2 million refugees entered Pakistan. More than 150 refugee settlements were established, and the biggest of these was Jalozai, which housed 80,000 people at its peak. Only 40 kilometres away from Peshawar, the space of the Jalozai camp was simply too small for the amount of people that were packed into it. According to a report of the UNHCR senior emergency officer, Mohammed Ader, people were crammed together and
“there was simply not enough space to dig the latrines that were required and to put in the shelters that were necessary.” The experience for the hundreds of thousands of Afghans that lived in the camps was bitter. It was overcrowded, filled with make-shift tents, no water or sanitation and no firebreaks. These conditions were serious risks for the spread of infectious diseases such as meningitis, measles and tuberculosis. But over the years, because of how Pakistan treated refugees, Jalozai became a hellish stopover. According to Doctors Without Borders, which was the only NGO to be operating in the camp, the history of Jalozai and the fate of its population have been controversial issues. In the 1980s, people coming to the camp were fleeing the Soviets, but as the Taliban seized the vacuum in the 1990s and began to consolidate, Afghans began to flee from them. As the earlier mentioned Doctors Without
HOUSING
Borders report mentions, up until 1998, Pakistan granted asylum to them on a prima facie basis, meaning the entire group was considered refugees without giving individuals refugee status. That changed in 1998 when Pakistan no longer considered new arrivals as genuine refugees. However drought and ongoing conflict caused an ongoing influx of Afghans seeking refuge in Pakistan. While in other locations such as Shamshatoo a whole system was being set up with food distribution, health care and education, Jalozai was neglected, despite a rapidly rising population lacking any assistance, let alone refugee status. ‘Deplorable and inhumane’, were words describing the situation inside Jalozai. Later on, after the events of September 11, there was another influx of refugees. While the UNHCR celebrated the closure of the camp in February 2002, Jalozai remained a sore spot for years to come. Resentment among refugees meant that there were many there indoctrinated by the Taliban. The camp partially turned into a hideout for militants, and was under attacks as recently as 2014. Now, after years of relative stability and freedom from terror attacks, Jalozai is ready to become a modern economic zone, and with that comes a fully equipped housing society. The transformation of Jalozai from a horrendous camp of nearly 100,000 to a housing society is an important and sure step towards coming out of the shadow of the War on Terror. But given the delicacy of the area, how is the government dealing with this change?
Special economic zone
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n July this year, as the coronavirus pandemic was at its peak in Pakistan, KP Chief Minister Mehmood Khan broke ground on the Jalozai Special Economic
“Jalozai will prove a game-changer for the region due to its strategic location. Due to the availability of labour in Jalozai, industries including pharmaceutical, food processing, construction, marble and granite, food packaging and furniture would benefit from the investment in the zone.” Mehmood Khan, Chief Minister of KP
Zone in the Nowshera District. There is a recent detailed feature on SEZs and how they work by Profit, which explains what Jalazoi being turned into an SEZ effectively means. It is also worth mulling the shift in times we are seeing. If the coronavirus pandemic had happened even 10 years ago, Jalozai would have been a major virus epicenter. The horrendous camp had been so cramped it was an epicenter of diseases much less infectious and more easily manageable than the coronavirus. Now, however, Jalozai is a place for which the KP government has high hopes. A statement from the Chief Minister says that the zone’s development by the KP
Economic Zones Development and Management Company over 257 acres of land is likely to generate 50,000 direct and indirect jobs, attract Rs6 billion investment, and is testament to the rapid industrialization of KP. “Jalozai will prove a game-changer for the region due to its strategic location,” he said. “due to the availability of labour in Jalozai, industries including pharmaceutical, food processing, construction, marble and granite, food packaging and furniture would benefit from the investment in the zone.” Along with this dream for economic development and prosperity for Jalozai, come practical needs as well. Chief among them are living solutions for the 50,000 people that will find themselves employed thanks to this SEZ. For this, a housing society is being set up, with the ensured provision of all necessary utilities to the zone, including 5 to 10MW power from the 132KV grid through 11KV.
From abject camp to fully loaded housing
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s an SEZ, Jalozai has different rules. It also means that the government is doing everything it possibly can to attract investment and increase ease of doing business. Part of this process includes making sure that skilled workers are on hand and regularly available. The best way to do this is by providing them with quality accommodations, which means that the Jalozai housing society is not going to be a money making endeavour for the provincial government.
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KP Housing Minister, Dr Amjad Ali, said that the Provincial Housing Authority (PHA) was working to further extend the land area of Jalozai housing scheme by 5000 kanals of land. According to him, the PHA y has approved the acquisition of additional area through land sharing basis. Under this scheme, the owner of the land would get one Kanal developed plot for handing over four kanals to the housing authority. In addition to this, the landowners will pay Rs 1.2 million as development charges. These kinds of expansions were never attempted whe Jalozai was only a campy, but now after this scheme, the price of one Kanal of land in Jalozai housing scheme is around 3 million rupees. This way, the housing scheme will expand and local landowners will also get a profitable share. “Over 70 percent of the plots in the Jalozai housing scheme have been allotted to government servants in three year instalment plan. At least 90 percent of the construction work on the scheme from block A to E has been completed, and the possession letters to the allottees of Phase 1 would be awarded in December 2020, after which the owners could start the construction work on their houses,” says Dr Amjad Ali. “A dedicated grid station would be established for the housing scheme, on which the Peshawar Electric Supply Company (PESCO) would start physical soon. PESCO, until the establishment of the grid station, will provide powers through dedicated feeders on a transition basis. Part one of this project requires the spending of Rs14 billion.” These kinds of arrangements were not even a dream back when Jalozai was still a camp. Now, the housing society being planned in this space is being built on a large model along the lines of gated communities in urban areas. Most of the land being acquired for expansion will not in fact be used for residential purposes, but instead for roads, parks, and other recreational purposes that will make the housing society top of the line. “We have also allocated space for commercial purposes in the scheme, which would soon be advertised. Residents will be able to avail the facility of private schools, colleges and healthcare facilities in the premises,” said Dr Ali. “The PHA is also going to construct around 20,000 grey structures in Peshawar Residencia housing scheme under the Naya Pakistan Housing Programme. The houses units will be constructed in collaboration with Pakistan housing foundation in Sarozai area of Peshawar,” he goes on to say. He explains that the Pakistan housing foundation was the implementing partner in the scheme, and responsible for the construction of the grey structures. He said the balloting process for
“We have also allocated space for commercial purposes in the scheme, which would soon be advertised. Residents will be able to avail the facility of private schools, colleges and healthcare facilities in the premises.” Dr Amjad Ali, KP housing minister
the housing scheme has already been completed, and a consultant has been selected. He added the total cost of the project was 97 billion rupees. “Approval has already been sought from the PDWP for construction of boundary wall, main gate and check posts for the scheme. This is all for ease of access. The PHA was not a profit earning enterprise, and its prime focus was to provide shelter to low income strata in the province on no profit no loss basis,” said Dr Ali. He went on to say that the provincial government has also signed an MOU with Federal Government Employees Housing Authority (FGEHA), under which the PHA would construct 20 plus floors High rise residential apartments in Nishtarabad area of Peshawar. He said the high-rise building would be constructed on 36 Kanal of land on the model of Centaurus Islamabad, which would also include commercial spaces apart from residential apartments. He said a total of 15bn rupees would be spent on the project. The housing department has also started several schemes for the government servants in the province. The PHA was constructing highrise flats for the government sector in Phase
five Hayatabad, on which more than 80 percent of construction work has been completed. He said two blocks, B and E, of the high rise flats would be completed by October this year. Similarly, work on civil quarter flats would also be initiated soon. He added, the department has also launched the Hangu Township project for general public and government servants, for which the registration process was underway. “In addition to mega housing schemes in the province, the government was also focusing on development of satellite towns in various areas of the province. The Mulazai housing scheme in Peshawar has been completed and soon the allottees would start construction work on their houses.” Similarly, he said the PHA has also completed 350 Kanal Hevelian housing schemes. He said work on Swat housing scheme in Dangram would also be started soon, in which 50 Kanal of land has been allocated for the media colony. He said potential sites have been identified for the establishment of satellite towns in various areas of the province, which includes Peshawar, Kohat, Khyber, Swat, Malakand among others. He said consultants would be hired after issuance of section four. n
HOUSING
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COVER STORY
By Farooq Tirmizi
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his article is a paradox: it will ask you to stop taking expatriates seriously and is itself written by an expat. But with the ruling Pakistan Tehrik-e-Insaf’s (PTI) obsession with Pakistani expatriates as some sort of magic resource that will be the salvation of this country, the following sentence – unfortunately – needs to stated explicitly: I am not better than you, and the government of Pakistan needs to stop treating me that way. What are we talking about? The Naya Pakistan Certificates, which are fundamentally a certificate of deposit product accessible only to expatriate Pakistanis through the Roshan Digital accounts (which themselves are a travesty, but more on them later). They offer extraordinarily lucrative interest rates which are unjustifiable considering the state of interest rates everywhere in the world. And they are available only to expatriates and not to anyone who actually lives, works, and pays taxes in Pakistan. That is right: Pakistanis are going to be treated as second-class citizens in their own country, and it is going to be at the behest of the people who left the country when things got tough. Does that sound remotely fair? In this article, we explore three things: firstly, what are these deposit accounts and why do they exist at all, and why are they targeted towards expatriates? Second, we explain that the deposit accounts themselves are a terrible idea and a continuation of the same terrible macroeconomic policies of former finance minister Ishaq Dar that caused the 2018 recession, except that these policies are even more poorly executed than Dar’s policies. And lastly, we then get into the fact that these deposit accounts are just manifestly unfair, offering privileges to expatriate Pakistanis that are denied to resident Pakistanis.
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What are the Naya Pakistan Certificates?
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he Naya Pakistan Certificates are a modification of a previous attempt to get expatriate Pakistanis to park their money in Pakistani government bonds, but this product – from a purely financial consumer perspective – is actually much better than the previous attempt. The Naya Pakistan Certificates replace the Pakistan Banao Certificates, a program which flopped badly and failed to generate any meaningful amounts of money for the government. We previously reviewed the Pakistan Banao Certificates – which were US dollar-denominated government of Pakistan bonds – and found that they were not a particularly compelling bond offering relative to the sovereign risk posed by the government of Pakistan. The interest rate was lower than those of comparable dollar-denominated bonds, including ones issued by the government itself. Well, it seems the government took our advice to heart. They raised the rates – by a lot. The actual nominal rates do not appear to be particularly much higher. The 5-year Pakistan Banao Certificate had offered a US dollar-denominated interest rate of 6.75% compared to the 5-year Naya Pakistan Certificate which offers a rate of 7.0% for the same tenure. The difference, however, is that the benchmark interest rate against which all US dollar-denominated bonds are measured – the interest rates on comparable US treasury bonds – have shifted dramatically. In February 2019, when the government of Pakistan launched the Pakistan Banao Certificates, a 5-year bond issued by the United States Treasury had a yield-to-maturity (a standardised rate of return for a bond) of approximately 2.5%, according to data from the United States Treasury Department. That implied
that the Pakistan Banao Certificates were priced to pay a yield of 4.25% above a US Treasury bond of a comparable yield. In September 2020, when the government of Pakistan has launched its Naya Pakistan Certificates, the 5-year US Treasury bond had a yield-to-maturity of approximately 0.27% per year. That means that the Naya Pakistan Certificate is paying a yield of 6.73% above a comparable US Treasury bond. That difference in the spread between comparable US bonds and the government of Pakistan’s debt is staggering. That, in itself, is a red flag. But then there is the fact that the Naya Pakistan Certificates are not – strictly speaking – bonds, but rather certificates of deposit. More specifically, they are (almost) no-penalty certificates of deposit, meaning there are no penalties for early withdrawal, if one withdraws after the first three months. That means that the depositors’ assets are more accessible – liquid, in finance parlance – than a typical government bond. Liquidity typically means that investors are willing to pay a higher price, and thus get a lower yield, for a fixed income investment like a certificate of deposit. That is why certificates of deposit typically tend to have lower yields than bonds of similar risk and tenor. So, the Naya Pakistan Certificates should have had considerably lower interest rates than they do. Of course, the flipside is also true: from a depositor’s perspective, these are a really great product. Profit compared the rates offered on the Naya Pakistan Certificates to US dollar-denominated certificates of deposit in the United States and the United Arab Emirates (two markets for which it is easiest to compile such data) and found that the rates are significantly higher than rates in both countries. The best rate we could find for a 5-year certificate of deposit in the United States was 1.65% offered by Old Dominion Bank, compared to the 7% for the Naya Pakistan
Certificate. And in the UAE, the best 5-year rate we could find was 2.36%, offered by the National Bank of Abu Dhabi. In other words, it is not even close. The Naya Pakistan Certificates are a far better product if you are an expatriate Pakistani. So why is the government offering such high rates to expatriate Pakistanis? To help the country raise its foreign exchange reserves and help the government finance its deficit. Those sound like reasonable goals, but a closer examination suggests they may end up leaving the economy weaker rather than stronger.
Why the Naya Pakistan Certificates are a terrible idea
T
he fundamental problem is that the government of Pakistan is raising financing at rates akin to a distressed debt investment, which only makes sense to investors when the entity raising that debt promises to fix the structural problems that got it into that distressed financial situation in the first place. On that front, the government of Pakistan is making no serious efforts at all. If anything, the Naya Pakistan Certificates may be proof that the government has not gotten out of some of its very bad habits. Let us take a step back and first examine what will happen with these Naya Pakistan Certificates. These are certificates of deposit backed by loans to the government of Pakistan. The government of Pakistan has not stated explicitly whether these loans will be for a specific purpose, so a good assumption is that these bonds are likely general purpose bonds, meaning they will be used to finance the government’s budget deficit rather than any specific projects. Here is what that means: the government is borrowing at high interest rates in US dollars to pay for mostly consumption expenses that it has undertaken in rupees. It will then have to pay back these loans at a time when the rupee will have likely depreciated, meaning the effective rupee interest
rate on these loans is quite high, and actually higher than the rates the government is able to borrow at when it borrows domestically in rupees from resident Pakistani individuals and institutional investors. Indeed, we lay out in one of the charts the comparison between the rates the government borrows from savers at the National Savings – which are quite comparable to rates the government pays institutional investors when it sells Pakistan Investment Bonds (PIBs) – and the rupee-denominated rates of the Naya Pakistan Certificates. The Naya Pakistan Certificates, as is evident in the chart, are clearly higher. And by the way, the government’s rupee-denominated rates for the Naya Pakistan Certificates assume an annualised rupee
We do not have a foreign exchange problem, we have a debt problem. And the debt, in turn, is a problem because the government consistently refuses to tax the people it should tax, and spends on things it absolutely should not be spending money on, and therefore persistently runs high budget deficits that it needs to keep finding creative ways to borrow enough money to finance
depreciation rate of 4%, when in fact, the historical average has been between 6% and 7% a year, depending on which time period one examines. Since 1992, the rupee has depreciated by an average of 6.7% per year. So, the effective interest rate the government is paying on the Naya Pakistan Certificates is much higher than it would otherwise from any other borrowing source. Is there something else that makes it worth it for the government to pay this high a price? The government’s argument would be that it helps build up foreign exchange reserves. Every time an expatriate Pakistani opens up a Roshan Digital account and deposits money into it, they do so in US dollars, which then become part of the country’s foreign exchange reserves. That helps the current account deficit and helps keep the exchange rate stable. But the problem with doing that is that this is all borrowed money, and – in the case of certificates of deposit – can leave any time it wants to, which usually coincides with an economic downturn in Pakistan. Contrary to popular belief, Pakistan does not turn to the International Monetary Fund (IMF) for bailouts every few years because it has a balance of payments crisis and runs out of dollars. The government runs out of dollars and has a balance of payments
COVER STORY
crisis because it borrows in dollars to finance consumption rather than investments that would yield more foreign currency. The government’s actions are akin to a company borrowing lots of money to pay its CEO and management tons of bonuses, instead of – for example – investing in a new factory or a new line of business that would generate the additional cash needed to pay the loan back. We do not have a foreign exchange problem, we have a debt problem. And the debt, in turn, is a problem because the government consistently refuses to tax the people it should tax, and spends on things it absolutely should not be spending money on, and therefore persistently runs high budget deficits that it needs to keep finding creative ways to borrow enough money to finance. Here is the fundamental structural problem with the Pakistani economy that keeps on causing the fiscal and current account crises that we keep facing: The government makes no effort to tax the wealthy, both the urban industrial elite and the rural agricultural elite. It buys the upper middle class’ silence by offering highly subsidized energy costs. It buys off the organized labour unions by maintaining large, inefficient state-owned enterprises to employ them. It ignores absolutely everyone else. More foreign exchange – whether it be through government bonds or any other means – is not going to solve that vicious cycle. The Pakistan Banao Certificates – and now the Naya Pakistan Certificates – are the latest in a long line of schemes designed to get the government more money without taxation. The government of Pakistan, in other words, is effectively a Ponzi scheme and investors in the Naya Pakistan Certificates will be only marginally better off than those of Bernie Madoff. Indeed, in some ways, this is actually a less efficient way to raise funds than former Finance Minister Ishaq Dar, who continued
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The best rate we could find for a 5-year certificate of deposit in the United States was 1.65% offered by Old Dominion Bank, compared to the 7% for the Naya Pakistan Certificate. And in the UAE, the best 5-year rate we could find was 2.36%, offered by the National Bank of Abu Dhabi. In other words, it is not even close. The Naya Pakistan Certificates are a far better product if you are an expatriate Pakistani. to borrow US dollars to keep the price of the rupee artificially inflated but did so through institutional bonds which had a lower interest rate than the ones being offered by the Naya Pakistan Certificates. And with sovereign bonds, underwritten by global investment banks, there is at least some measure of certainty that you will raise the amount of money you want to. With certificates of deposit like this, who knows how much will be invested? Profit has learned from some high net-worth individuals based in the United Arab Emirates that they are considering investing relatively large sums of money, but it remains unclear exactly how representative those individuals are of the broader Pakistani expatriate community, whether it be in the UAE or elsewhere. Sources from within the banking sector confirm that banks like HBL, Faysal Bank and others are aggressively opening up Roshan Digital accounts at their branches, and an estimated ten thousand applications are already under process. In short, the Imran Khan administration appears to have revived the old government obsession with the exchange rate – after having spent two years being so good about letting it be free – and are less efficient at trying to prop it up than the Nawaz Administration. At least that lack of efficiency is likely
to be some small measure of mercy for the long-suffering Pakistani economy.
Why the Naya Pakistan Certificates are unfair
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ut beyond the fact that the Naya Pakistan Certificates are a likely less competent way of implementing a bad policy objective, there is a more fundamental problem with them: they are unfairly generous to expatriate Pakistan and, by implication, render resident Pakistanis second-class citizens in their own country. This obsession with expatriate Pakistanis is one that is unique to the Imran Khan Administration and their ideological predecessors in the Musharraf Administration. But at least in the Musharraf Administration, the only thing that the government did was make it easier to have dual citizenship and to enter and exit the country by possessing a Pakistan Origin Card (POC) or a National Identity Card for Overseas Pakistanis (NICOP). Those are just procedural and bureaucratic accommodations for people that help keep the diaspora connected to the Pakistani population while in no way infringing on the rights of resident Pakistani citizens. The Imran Khan Administration, by
TEXTILES
contrast, is enamoured to the interests of expatriate Pakistanis in ways that even expatriate Pakistanis are not about their own interests. For instance, who in the world has left Pakistan and would like to still be able to vote in Pakistani elections? If I feel that passionately about voting in Pakistani elections (and I personally do), I can time my annual trips home to coincide with election season. But again, even expatriate voting takes away nothing from resident Pakistanis. The Naya Pakistan Certificates do. They offer a benefit to expatriate Pakistanis – high interest rates on easily accessible certificates of deposit – that are explicitly barred to resident Pakistanis. And by the way, the taxes of those resident Pakistanis will have to pay for the interest on that exorbitant interest to the expatriate Pakistanis. In what universe can that possibly be construed as fair? The problem with the PTI’s stance towards expatriate Pakistanis is that they view us as somehow better than the Pakistanis who continue to live within Pakistan. There is a view, for instance, that expatriate Pakistanis are somehow patriotic towards Pakistan, or that we are more law-abiding, or that our remittances are somehow an act of love for the country. All of those are lies that need to be systematically refuted so that this government can stop offering undeserved special privileges to expatriates at the expense of actual residents and citizens.
Barring those who left Pakistan because they were persecuted for the religious or political beliefs (a shockingly small minority of expats), the overwhelming majority of people who leave Pakistan do so for one reason above all else: money. I left Pakistan because I wanted more money and a better life than the country could offer me. That is it. That ‘better life’ in my case also included higher education in the United States, which one supposes is a somewhat more acceptable purpose than the raw mercenary instinct of wanting more money. But make no mistake: people leave because they want more material comforts above all else. That does not make expats bad people or any worse than any person who chooses to stay in Pakistan. But it absolutely does not make us any better, and the PTI-led government would do well not lose sight of that fact. The patriotism of expatriates, however, is completely fake. It is a misguided manifestation of nostalgia more than anything else. Expats love not the country that is, but their memories of family and friends that they left behind. The patriotism that one sees at the events that Musharraf and Imran Khan hold abroad is more of a manifestation of the guilt we feel for having abandoned our families and friends for the material comforts we live with now, for not having done more to ensure those we left behind could have a better life. It is guilt masquerading as patriotism, but
The Naya Pakistan Certificates offer a benefit to expatriate Pakistanis – high interest rates on easily accessible certificates of deposit – that are explicitly barred to resident Pakistanis. And by the way, the taxes of those resident Pakistanis will have to pay for the interest on that exorbitant interest to the expatriate Pakistanis. In what universe can that possibly be construed as fair?
it is not even the kind of guilt that motivates real action. It is a hollow guilt: a performance of words when one does not want to actually change any of one’s actions. The patriotism is very loud hypocrisy, and nothing more. As for the money sent back as remittances, it has nothing to do with love of country at all: it is purely love of family. People support their families financially regardless of where they live. I live in Washington DC and my brother lives in Karachi. We both support our parents. I have a little more money, he has more of an ability to help with his physical presence. There is nothing more to remittances than that, at least for expats living outside the Gulf Arab states. With the Gulf Arab states, there is definitely a different dynamic: they can never look at the country they live in as home, so they build their nest eggs in Pakistan and send money accordingly. Not all of the money is for family: some of it is their own savings. But again, the motivation is not altruistic, or patriotic at all. We would undertake all of these actions regardless of what the government thought of us. It helps – as in the case of the Pakistan Remittance Initiative (PRI) of the State Bank of Pakistan – when the government removes barriers. So, for instance, the Roshan Digital accounts allow expatriates to open bank accounts in Pakistan completely online, and by mail, which is remarkably helpful. But that is a privilege that is denied to resident Pakistanis, which makes the whole thing unfair: expatriates are being offered something that would benefit residents too, but only the former gets it and the latter does not. And, of course, as we mentioned, the Naya Pakistan Certificates take that perverse logic one step further: taking tax money from the hard working, law-abiding, tax-paying residents, and giving it away to the expatriates in the form of excessively generous deposit accounts – while denying access to those accounts to the people who are ultimately paying for them. This is wrong. Just plain wrong. There are no other words to describe it. And it must be put to an end as soon as humanly possible. n
COVER STORY
HBL
invests Rs500 million into its asset management subsidiary Will the HBL Asset Management actually grow, along with Pakistan’s nascent capital markets?
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By Meiryum Ali
akistan’s largest commercial bank has decided to take a bet on the country’s nascent capital markets. In a notice issued to the stock exchange on September 25, Habib Bank Ltd. (HBL) said it had received approval from the State Bank of Pakistan for undertaking an equity injection of Rs500 million in its wholly owned subsidiary, HBL Asset Management. HBL, which operates more than 1,600 branches across Pakistan, has six subsidiaries, of which three are wholly-owned. HBL Asset Management is one of them. The company was incorporated in February 2006 as a public limited company, and was licensed for Investment Advisory and Asset Management Services by the Securities and Exchange Commission of Pakistan (SECP) in April 2006. The company launched its first fund in 2007. In 2016, the company acquired PICIC Asset Management Company Ltd, which has subsequently merged into the fold. Today, HBL
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Asset Management manages 19 funds, of which 17 are mutual funds, and two are pension funds. As of June 2018, the company managed assets worth Rs60.1 billion, which places it fifth in terms of assets under management, behind NBP, which manages Rs99.2 billion; Al-Meezan, at Rs93.7 billion; NIT, at Rs87.1 billion; and UBL, at Rs70.1 billion. To recap, HBL Asset Management is operating in a pretty bleak environment. At this point it is a well known trope that Pakistan’s capital markets are basically non-existent. In 1962, the National Investment Trust Ltd., which launched the first open-end mutual fund. And then it stayed like that for the next 33 years, until 1995 when the private sector was finally allowed to launch open-ended mutual funds. JS Investments was the first asset management company to launch an openend fund, in 1997. Licenses were given to Arif Habib, Al-Meezan, and UBL in 2000. Most regulations, licenses, even the creation of the SECP, is a product of the late 1990s or early 2000s. That has cost the country precious time. Today, there are only 19 asset management companies operating in Pakistan,
which collectively manage 290 funds worth Rs540 billion. Participation of the average Pakistani is abysmal: there are just under 244,000 people in Pakistan who have a capital markets account of any kind, according to data from the Central Depository Company (CDC), which amounts to just about 0.11% of the total population. This compares to 0.81% even in comparable economies like Bangladesh, while in India the figure stands at 4.5%. Now, for a subsidiary, HBL Asset Management does not actually make that much money for HBL. In the year ending 2019, HBL’s total profit before tax was Rs28.9 billion (its profit after tax was Rs15.5 billion). Of that, HBL Asset Management only contributed Rs99 million in profit. It actually fared a little better in 2018, when it contributed Rs384 million to HBL’s overall profit before tax of Rs21.6 billion. For the six months ending June 2020, HBL Asset Management actually made a loss of Rs15 million (HBL’s profit before tax for this period is Rs25.8 billion). But that is alright. Asset management companies are not vehicles for high profits,
“The recent investment could be part of such a strategy where the bank’s own equity book has shrunk by around 50% in the past two years, while utilising the asset management company to take fresh exposure in equities” Hamza Kamal, senior investment analyst at AKD Securities at least for banks in Pakistan. So, why is HBL deciding to invest into its tiny subsidiary (that too, more money then HBL Asset Management has ever made)? HBL’s own response was short and perfunctory. In response to an e-mail query sent by Profit, HBL said: “HBL Asset Management Company is a wholly owned subsidiary of HBL. It is a leading fund manager. The equity injection will allow HBL Asset Management Co. to further strengthen its operations, including a focus on digitalisation, thereby serving its customers and clients even better.” This fits into HBL’s current narrative of ‘IT company with a banking license’. However, digitalisation, while extremely necessary, typically does not cost around Rs500 million. So Profit asked some analysts. According to Hamza Kamal, senior investment analyst at AKD Securities, an investment bank, HBL’s management in recent times has been trying to optimize group synergies. “The recent investment could be part of such a strategy where the bank's own equity book has shrunk by around 50% in the past two years, while utilising the asset management company to take fresh exposure in equities,” he explained. According to Faizan Kamran, equity research analyst at Arif Habib Ltd., “The bank is possibly looking to grow its asset management wing as Pakistan’s capital markets are continuously growing.” Kamran pointed to two events outside of HBL’s domain. On September 28, the Asian Development Bank (ADB) approved a $300 million loan to Pakistan. In making its decision, ADB said, “Capital markets act as a major catalyst in transforming the economy. The loan will help strengthen Pakistan’s finance sector by supporting measures to develop competitive capital markets and encourage private sector investment.” Second, earlier in September, the federal government launched the Roshan Digital accounts, designed primarily for expatriates. Non-resident Pakistanis can now remotely open an account in a bank completely online, without having to visit a bank branch, embassy, or consulate. They can choose to either have a foreign currency or rupee denominated
account, or both, and funds in these accounts can be fully repatriable, without the need for any regulatory approval. SBP Governor Dr Reza Baqir had earlier told Blomberg that the accounts would be available to the nine million non-resident Pakistanis, allowing them to invest money in local stock markets, buy government bonds and
securities, and avail basic banking services. And this is why Kamran says, “There is a concerted focus on developing the country’s capital markets and the bank possibly felt it is an opportune time to inject equity into its asset management company.” n
Sapphire goes all-in on serving Pakistani women’s clothing needs… and wins big The retail giant is experimenting with new product lines and online sales all geared towards the still relatively nascent phenomenon of the middle class woman who works outside the home
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ou would think, that in the middle of a pandemic that has gripped most countries and societies, that many Pakistanis would consider the act of buying new shalwar kameezes last on the priority list. Of course, you would be wrong. This may have been a tricky year for textiles on a whole, but retail is doing just fine. And for that, all you have to do is take a look at Sapphire. For the year ending June 2020, Sapphire Textile Mills, which is the holding/ parent company of Sapphire retail made a consolidated profit after tax of Rs7,864 million, compared to 2019’s profit after tax of Rs5,039 million. Similarly, the company’s net revenue was around Rs53 billion, compared to 2019’s Rs49.6 billion, which represents a growth of 6.9% during a year when most businesses have seen declining revenue.
What happened in 2020? For that, let’s recap the history of Sapphire. Sapphire is one of the largest industrial conglomerates in the country, focused in textiles, power generation, dairy and retail, but is perhaps most famous for the last industry. Sapphire Retail is the brainchild of Nabeel Abdullah, a member of the family that owns a majority share in the Sapphire Group. He is currently the CEO of Sapphire Retail and a member of the board of directors of Sapphire Textile Mills. The company started off in 2014, with a Rs10 million investment in a single store in Dolmen Mall Karachi, which opened in December of that year. Sapphire Retail is mainly a clothing brand, but also sells bedding, linens, and other home décor products. The company has four spinning plants, one weaving plant, and one sticking plant. In fiscal year 2020, the processing,
BANKS
printing, home textile, and textile retail division of the publicly listed Sapphire Textile Mills Ltd – which houses Sapphire Retail – had revenues of Rs14,674 million. That represents a 32.4% average annual growth rate over the Rs2,730 million in revenue the company did in that segment in 2014, the year the company started the retail business. From that initial Rs10 million investment in a single store, Sapphire Retail has grown substantially. The company operates 25 stores across Pakistan, including in Faisalabad, Sialkot, and Gujranwala. Profitability in the retail business hit Rs946 million in pre-tax income for the year ending June 30, 2020 Some of Sapphire’s growth have to do with long term trends, and some are specific to 2020. Let’s start with the first. Sapphire, and other Pakistani retail brands, are benefiting from a phenomenon that is out of their control: simply put, more Pakistani women are going to work, need more clothes for work and have less time to spend on making clothes themselves, and finally have some decent disposable income to spend. Consider: Pakistan’s female labour force participation rates have increased dramatically, from 16.2% in 2001 to 25% in 2018, the latest year for which data is available from the Labour Force Survey conducted by the Pakistan Bureau of Statistics (PBS). You can
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see this trend reflected in other data too: in 2002, according to PBS data, more than 68% of total spending on clothes went to buying unstitched cloth and other accessories and only 13% of spending went to readymade clothes. In 2016, the proportion of consumer spending going to readymade clothes was 33%, with unstitched cloth and accessories going down to 50% of total spending. One can see this shift in Sapphire’s clothes as well. When the retail giant started out, the company focused on high-end expensive three-piece suits, which were typically made of cotton or silk, but often resplendent with embroidery (which increased the cost). No more: by 2020, the company has shifted to making cotton ‘lawn’ one-piece kameezes, or light cotton, with little embroidery, or simple patterns. Part of it is a marketing strategy to differentiate from, say Khaadi, which makes colourful, machine embroidered, kameezes, whereas Sapphire gravitates towards floral prints. But part of it is to also target a younger consumer segment: working women in their 20s who typically mix up their separate kameezes and pants, and have less money to spend on three-piece suits. It is also why Sapphire introduced Sapphire West in July 2019, which is the company’s response to a demand for western clothing by younger women. It also introduced
Sapphire Intimate and Sleepwear in December 2019, which so far no major Pakistani retail company has moved into. Bras in Pakistan fall in two camps: expensive, over-the-top bridal sets, or cheaply-made, flimsy products. Sapphire’s decision to produce aesthetically normal bras (if still a little pricey) shows the company is, again, responding to young women's consumer needs. Sapphire is also benefiting from the Covid-19 pandemic, in that the company was forced to jumpstart its online sales division. The company already sold its products online on its own e-commerce store as well as on Daraz.pk, the Alibaba-owned e-commerce company. However, when the physical shutdown happened, Sapphire was forced to ramp up online sales and marketing. It helped that both Eids this year – typical flash sale points for new shalwar kameezes – fell during partial lockdowns. Online sales went from around 7-8% pre-pandemic to around 28% durig Covid-19. Surprisingly, that figure stayed constant even after the lockdowns were lifted, and people began to visit malls again. People, it seemed, had become used to the idea of shopping for Sapphire online. A side-effect of this is that Sapphire’s operating costs actually decreased by half in one year, even though distribution and administrative costs stayed roughly in the same ball park. n
RETAIL
F
By Hassan Naqvi
or anyone that has had the pleasure of living in Lahore, the greatest displeasure the city has to offer (besides the winter smog) is the atrocious state of traffic congestion and parking availability. While the car density and traffic jams may be greater in Karachi, Lahore has it pretty bad as well. One only has to look at the example of Main Market in Gulberg. A posh area full of large mediterranean style houses before it was mostly commercialised, the Main Market with its famous Jalal Sons outlet was at one point a local market for area residents. One where shopkeepers knew you by name and you went more than a couple of times a week. Today, after the construction of a signal free corridor from Jail Road to Main Boulevard and all the way up to Kalma Chowk, Main Market has become a central point right in the middle of this corridor, and a parking mess. The corridor
INFRASTRUCTURE
was built in 2010, during Shehbaz Sharif’s first post-exile and second overall tenure as Chief Minister of Punjab. This was a time when traffic infrastructure construction was at an all time high in Lahore. The reason? More cars than ever before, and naturally, fewer parking spaces. Which is why in 2012, the then Chief Minister decided that it would be wise to set up an independent company to manage and renovate the existing parking infrastructure in the city, and make plans to create new parking spaces, as well as integrate innovative strategies such as rotating parking spaces. The Lahore Parking Company, which operates under the LePark moniker, was thus formed, and their beige clad parking operators have been managing the city’s dismal parking situation ever since. Now, LePark is on the verge of being closed down, a process that has been in the works for many years. The Lahore Parking Company had come into being after many trials and tribulations, including development hell, inquiries and cases by
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the National Accountability Bureau, and the squeezing of funds. What was this company supposed to do when it was formed nearly a decade ago? And more importantly, why did it fail? Profit looks back at the iconic LePark.
Why LePark?
W
hen the Lahore Parking Company was first formed, it was an emergency measure. The situation was bad enough that the Punjab government needed someone to take over the management of its existing parking infrastructure and simply handle it better and more efficiently. However, as part of a more long term plan, the government had grander ambitions for the company. The company aimed to rehabilitate the existing parking sites in the city and it had a
vision to plan and design new parking sites as per international practices by considering the local conditions. The company’s core objective was to develop modern parking sites in the city equipped with automatic ticketing machines, barriers, hand-held terminals, and cameras. To this end, LePark was supposed to install a modern system that would have been intelligent, time efficient and automatic. The main objective of the company was creating public convenience and this would have been ensured by Automatic Parking Management System, Proper Pavement Marking, Signage, Adequate Pedestrian Pathways, Lighting, etc. However, other than managing parking, the company could have been a unique and dynamic force in the management of the City, particularly for security purposes. Since the biggest concern of vehicle owners while parking is safety, the company had ambitious plans
Essentially, the story of the Lahore Parking Company is one of gross incompetence. Through the different committees that have tried to decide its fate over the years, it is obvious that the company was unable to present any concrete measures to address the challenges faced by the company and to establish modern parking systems. Even after multiple warnings, the Company has failed to bring any substantial revenue enhancement proposal 32
to ensure a modern surveillance and enforcement system to cater the threat of safety and security in parking sites. Automatic ticketing machines, latest high definition cameras, barcode scanners, etc would be installed to ensure security of vehicles. There were the top priorities. Then there would be other factors, such as assisting the traffic police and going on campaigns for public awareness regarding parking rules and regulations. The company was to ensure that public awareness was carried out regarding the Automatic Parking Management System and its efficient use via electronic and print media, and seminars at different forums. Another important use that the government got out of the company was that since they had handheld ticket machines and experience, they were given the responsibility of handling the ticketing of Lahore’s Metro Bus project, both at the stations and in the buses. But perhaps the most important and ambitious project that LePark had was making large rotating automatic parkings at a familiar site in Lahore. To this end, six rotary parking machines have been installed at Lahore High Court, Old PND, Services Hospital, Mayo Hospital, DC office and Ichhra Site and other places. Also, the LePARK has successfully launched e-ticketing at Liberty D Parking Site, PCBL Site and Ittefaq Hospital Site. But the idea never really spread, and according to LePark General Manager, Rehan Waheed, there are 5.8 million vehicles in the Lahore city alone. Of them, 4.3 million are
motorcyclists and remaining are three-wheeler and four-wheeler vehicles. “This is what registered vehicles are. If we count unregistered vehicles too, the number may cross seven million,” he says. “The company proposed four parking plazas in different parts of the city to cater to traffic woes and so far there has been no development on them.” He says the company started working by regulating the parking lots, which were earlier being run by private contractors. Those contractors would work as mafia and would exploit the vehicle owners. They would overcharge and often occupied any vacant space along roads.
Death knells
S
o then what went wrong? The Lahore Parking Company was supposed to be a brilliant experiment that not only fixed the City’s rampant parking problems, but also acted as an extra government force to promote security and law and order. “The government, in fact, has decided to wind it up, and it was only a matter of time,” says the Punjab Government’s Steering Committee, headed by former finance minister Salman Shah. “ They never gave revenue to the government,” he explains. According to details, back in 2013, the company started working with 195 parking stands. Later on, the company made an assessment of potential sites, and found 438 sites suitable for parking lots. Of them, at a later stage, 235 sites were finalized. Despite all these measures, the traffic woes coming from the traffic parking never went away. Now, the Punjab government’s steering committee has decided to close down the Lahore Parking Company. According to officials, the public steering committee had to take the decision because of the poor performance of the company and its failure to achieve the stated objectives. Documents show that the steering committee in its Sept 17 meeting, presided over by Dr Salman Shah, adviser to the chief minister, reviewed performance of the LPC. But the talk about the performance of the company and its closure has been going on since 2016, back when Shehbaz Sharif was still running the show in Lahore. When Shehbaz Sharif was the chief minister, the government would often express displeasure over the poor performance of the
When the Lahore Parking Company was first formed, it was an emergency measure. The situation was bad enough that the Punjab government needed someone to take over the management of its existing parking infrastructure and simply handle it better and more efficiently. However, as part of a more long term plan, the government had grander ambitions for the company company. According to a document, “The chief minister in a progress review meeting on July 15, 2016 and December 27, 2016 expressed his displeasure with regards to poor performance of the company and its CEO, observing that the company failed to achieve its objective of solving parking problems, automating the parking sites and establishing new parking plazas/automated parking systems even after four years from its establishment.” “The Chief Minister directed for immediate action. During meetings the CM sought disbanding of the company. The committee raised serious concerns over the lack of technical competency, professional dedication and commitment towards achievement of the objectives. The committee proposed to hand over the administrative control of the company to the administrative department which is Municipal Corporation of Lahore being owner of the company.” Essentially, the story of the Lahore Parking Company is one of gross incompetence. Through the different committees that have tried to decide its fate over the years, it is obvious that the company was unable to present any concrete measures to address the challenges faced by the company and to establish modern parking systems. Even after multiple warnings, the Company has failed to bring any substantial revenue enhancement proposal. Now, the hour has arrived in which the government has started working on initiating a summary for seeking approval of the chief minister for winding-up of the company and assigning the function of public The MCL is expected to devise a comprehensive business plan outlined in a professional manner which may include, IT systems, automated/mechanized ticketing system, lane
The company, established in August, 2012 with an intention to eliminate the ‘Thekedar Mafia’ which was conniving with the local administration staff to rob the general public in the name of parking fee, is now being winded up to allegedly to facilitate the mafia and not the people
marking, installation of CCTV cameras for real time monitoring linked with the central dashboard to ensure transparency, GIS mapping of the parking sites, issuance of e-tickets through handheld android-based devices and shall conduct a study to realize actual potential of the parking from the Metropolitan City of Lahore. The Lahore Parking Company was supposed to have been doing all of these things, but their failure to collect revenue meant that they were always so cash strapped they could never really think about doing anything other than surviving. Now, the expectations are real and the MCL actions must ensure that parking operations are not high-jacked by the mafia to mint recovery from the helpless citizens. But tensions are brewing in the wake of the closure of the company. Employees are calling the decision malafide. “LPC is a jewel destroyed by the bureaucracy,” deplores an official who wished not to be quoted. He said the company, established in August, 2012 with an intention to eliminate the ‘Thekedar Mafia’ which was conniving with the local administration staff to rob the general public in the name of parking fee, is now being winded up to allegedly to facilitate the mafia and not the people. “The company is managing more than 200 parking sites spread all across Lahore in different locations.” “Around 800 workers are deployed there who have played a great role in minimizing the public complaints related to overcharging, misbehave, theft etc,” he claimed. He further claimed that the company, to date has paid around 230 million in cash and in addition provided the free parking services to the general public worth more than Rs260 Million averaging to approximately Rs70 Million per year over the course of the last 7 years. He demanded that the government must withdraw its decision in order to facilitate the people. However, it is unlikely that LePark will live to see much more. What can be said for sure is that whosoever runs the show after this, they will have to establish a centralized control room for the surveillance of the operational activities and parking fee collection systems if they are to avoid the same fate. n
INFRASTRUCTURE
Berger Paints: stagnant at best, losing market share at worst
Despite innovative advertising campaigns, the paint manufacturer has struggled to grow revenue
P
akistani actress Mehwish Hayat has four million followers on Instagram, and a devoted fan base. Berger Paints made roughly four billion rupees in sales this year, and has no devoted fan base. This is perfectly fine, because Berger hired arguably one of Pakistan’s biggest celebrities for a expansive print and TV ad campaign in 2018-19. It is why when you land on Berger’s website, you are greeted with the incongruous imagery of Mehwish Hayat in questionable get ups of an ancient roman goddess, Arabian princess, Chinese princess, and European aristocrat. Weird, most likely culturally inaccurate, but ultimately, very necessary for Berger Paints. That is because Berger is somewhat struggling, which is why Mehwish Hayat and other such ad campaigns are crucial to restoring the paint company’s sales. In the most recent financial statements issued to the Pakistan Stock Exchange in September, Berger Paints profit before tax stood at Rs114.5 million, which was the second lowest profit in seven years (the lowest profit before tax was just the year prior in 2018, at Rs113 million). To explain what is happening, first, let
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us look at the company. Berger Paints was incorporated in Pakistan in March 1950 as a private limited company, and was the first company in the country to offer premium products imported from the United Kingdom. The company established its first manufacturing facility in Karachi in 1955. In 1974, Berger became a public limited company. Around 49.4% of its shares were acquired by Pakistani investors, while the remaining 50.6% was held by U.K. parent company, Jenson & Nicholson Limited. Later in 1991, Slotrapid Ltd, a company registered
in the British Virgin Islands, acquired control of the company (not only does Slotrapid hold a 52% in Berger Paints, but also a 37% stake in Buxly Paints, another Pakistani paint company). In 2006, Berger established a manufacturing facility in Lahore, which is now its only facility. This facility also includes a resin manufacturing facility, the first in Pakistan. The company also moved its head office to Lahore as well, though it maintains regional offices in Karachi and Islamabad, and territorial offices in Gujranwala and Multan.
Over the years, Berger has entered into a number of technical arrangements with international manufacturers. For instance, it has collaborated with a Japanese paint company to provide speal auto paints to customers like Totya, HINO Pak, Al-Hajj FAW Motors and Master Motors. Berger also specializes in car refinishing (touching up the paint of a car), acquiring two distribution rights in 2011 and 2017 for specific auto paints, and even establishing a refinishing training centre. Name a major highway in Pakistan, and chances are Berger Paint will be providing the road markings and safety signs. The company is involved in at least 120 roads, highways, cantonments, and airports across the country. Finally, Berger Paints is also involved in decorative projects like Serena Hotel and Centaurus Mall in Islamabad. One would think that with such an exhaustive list of ongoing or complete projects, Berger Paints would have a steady flow of income. Yes, steady it may be, but it has barely grown over the last seven years. In fact, it is slipping. The company’s revenue in 2014 stood at Rs4,509 million. In 2020, the revenue stood at Rs4,177 million. That is an average growth rate of -1.3%. For comparison, between 2014 and 2019, competitor AkzoNobel Pakistan’s revenue rose on average by 3.1% per year. Meanwhile, Berger Paints profit before tax peaked in 2016, at Rs322 million, but dropped to Rs115 million in 2020. Profit called multiple brokerage houses to comment on Berger, yet it turns out that most do not cover paints at all. However, analysts pointed to several overarching themes. Berger Paints’ market share, which had always been on the back pedal, is still decreasing. One analyst went so far as to call it Berger’s ‘Achilles Heel’. The company keeps losing ground to ICI Pakistan, and even obscure Chinese brands. Furthermore, margins have come down because of the increase in the costs of sales. The price of raw materials for paints have risen up, while devaluation of the currency has not helped. Finance costs have increased because of an increase in interest rates. The company’s finance costs went from Rs165 million in 2019, to Rs195 million in 2020. According to analysts, the company also had to borrow to meet working capital requirements, due to the falling sales. This means a lot of short term borrowing, which came at a high cost. The increase in interest costs may have been temporary, though. As interest rates have fallen dramatically over the past 12 months, the company is likely to see its loans - almost all of which are variable rate loans - repriced at lower interest rates, which would ultimate-
ly help the company’s bottom line. Is there any bright spot ahead? The paint industry had suffered for the last few years due to a slowdown in the construction industry, which has caused demand for products to sharply decelerate. But in April, the government of Pakistan announced an incentive package for the real estate and con-
struction industry. Additionally, the central bank has asked commercial banks to allocate 5% of their total lending to the construction sector. This will hopefully improve and boost the construction industry as a whole, and lead to greater demand for paints. Perhaps Berger will not have to rely on Mehwish Hayat after all. n
Din Textiles enters the weaving business
The spinning company sees an opportunity to move up in the value chain
O
ther businessmen are wringing their hands over the impact that Covid-19 may have on their businesses. Not Shaikh Mohammad (S.M.) Muneer. This is not even remotely
the first crisis the chairman of Din Textile Mills has faced. In fact, the first major crisis he faced had nothing to do with textile. The Din Group, as it were, started in 1954, under his father, the late Shaikh Mohammad Din. It was a small leather shop that very
PAINTS
“Regarding Din textiles, I believe they’re going for weaving business as ample export orders are available these days. Moreover, with refinancing facilities like TERF and LTFF having lower interest rates, a lot of companies are going for expansion” Samiullah Tariq, head of research and development at Pak Kuwait Investment Company
quickly turned into one of the largest exporters of raw leather. But in 1966, the company went bankrupt, and the family had to sell personal assets like cars and property to survive. As S.M. Muneer put it in an old Dawn article, he considered taking a job at PIA. His father talked him out of it, a decision that would prove to be the right one (sorry, PIA). S.M. Muneer rented a small leather tannery in Karachi, and rebuilt the company tannery by tannery, eventually setting up his own leather factory in 1970. In 1987, S.M. Muneer felt comfortable enough to take on a new risk, and set up his first spinning factory in Chunian, close to Lahore. Today, Din Textile Mills has four spinning units, and one dyeing unit, located at Multan Road Pattoki and Raiwind. The consolidated annual production capacity of yarn is around 35.7 million kg, while the dyeing of fibre and yarn is around 4.38 million kg. The total number of spindles installed is 104,460. The mills employ 2,529 people, which is about half of the entire Din Group, which includes not just the mill company, but also Din Leather (yes, it still exists), and Din Farm Products. In the year ending June 2019, the company’s total sales stood at Rs11.6 billion, compared to 2018’s Rs9.5 billion. Of that, roughly 80% was local sales, while the rest were exported. The company has done reasonably well: it has made a gross profit every single year for the last six years, while it made a profit before tax between 2016 and 2019. The company had a rough 2017, but 2019’s profit before tax of Rs419 million was the largest
amount in six years. However, the company was not immune to the pandemic. In the most recent financials, for the nine month period ending March 31, 2020, the company’s profit before tax stood at Rs237 million, which is a slight dip compared to the same period from 2019 (Rs264 million). “The sudden outbreak of the pandemic interrupted the smooth flow of business worldwide, and it may have severe repercussions,” the director’s report worryingly noted. But that was in March. And this is S.M. Muneer we are talking about. The Sitara-i-Imtiaz holder has had a great career so far: not only is he the chairman of Din Textiles, but back in the day he partnered up with Mian Mohammad Mansha to buy MCB Bank, of which he has been the vice-chairman since the 90s. Which is why on September 23, Din Textiles informed the Pakistan Stock Exchange it would set up a weaving project, to start operating in January 2021. The total cost is expected to be Rs3 billion, while the production capacity is expected to be 13 million metres fabric. Considering that Din Textiles has been doing well, for a textile company in Pakistan at least, it makes sense to try to move up the value chain ie. try to enter the industry of the market they sell into. For example, a textile spinning company that spins cotton yarn would move up the value chain by entering the weaving business, using that yarn to weave it into cloth. But it is not just this one company that
“Textiles are eying increasing demand due to better competitiveness. This is driven by favorable exchange rate policies of the government. Previous governments had pegged the rupee for long periods, eroding the textile sector’s competitiveness” Saad Hashemy, executive director at BMA Capital
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is making moves. The entire textile sector has been using this time to make interesting decisions. For instance, Ravi Textiles decided to move backwards, and buy a ginning mill. Then, just a few weeks ago, the Bibojee Group – owned by the descendents of Habibullah Khan Khattak, including retired Lt Gen Ali Kuli Khan Khattak – merged their two textile spinning companies as well: Janana de Malucho Textile Mills and Babri Cotton Mills. Similarly, the Tata Group merged their three companies - Island Textile Mills, Salfi Textile Mills, and Tata Energy - with their fourth company, Tata Textile Mills. The directors said that in the long run, it would lead to greater stability, cost reduction, increase of the surviving entities’ international and local competitiveness, and sustainable operations. Why is it that in the middle of a global pandemic that has decimated countries and societies, including Pakistan, one sector has found time to experiment with options? According to Samiullah Tariq, head of research and development at Pak Kuwait Investment Company, said, “Regarding Din textiles, I believe they’re going for weaving business as ample export orders are available these days. Moreover, with refinancing facilities like TERF and LTFF having lower interest rates, a lot of companies are going for expansion.” It was a view echoed almost identically by Syed Fawad Basir, senior research analyst at Topline Securities, who said that orders had been building up due to Covid-19. Additionally, low interest rates meant that companies were now jumping on the chance to expand. According to Saad Hashemy, executive director at BMA Capital, “Textiles are eying increasing demand due to better competitiveness. This is driven by favorable exchange rate policies of the government. Previous governments had pegged the rupee for long periods, eroding the textile sector’s competitiveness.” n
TEXTILES
Pakistan’s young population has the skills and dedication to thrive despite Covid-19
T
he world may have taken a massive economic blow because of the still ongoing coronavirus pandemic, but that has still not left most young professionals desolate. According to a recent study by Standard Chartered conducted across 12 global markets, more than three quarters of the professional workforce feel they will be ready to utilize the opportunities that will arise post Covid-19. The Standard Chartered survey was conducted online, and 12,000 respondents from Hong Kong, Taiwan, Mainland China, Singapore, Indonesia, Malaysia, India, UAE, Kenya, Pakistan, the UK and the US gave insights into the financial shake-up that Covid-19 had caused and how they plan to deal with the future fallout of the ongoing crisis. To measure the impact of the coronavirus on livelihoods and to see what demographic was most suited to the post pandemic future, Standard Chartered presented the findings of the ‘young’ demographic, those aged between 18-34, separately as well. These showed that they would be the ones best equipped to make the most of the opportunities the world would present after the end of the pandemic. What will these opportunities be? According to the survey, using more technology, learning new skills, and focusing on digital talents are the main tools that will be needed to make the most of the post Covid-19 world. The increasing focus on technology and digital skills has been driven by young people in emerging markets, who are the demographic group that is the most confident, the most willing to adapt and prepared to work hardest. The results showed that incomes have fallen for a third of people globally, with the rate being a little higher at 35% in Pakistan. More than half the respondents said they expected a major change in the next three to six months, from reduced hours to reduced pay and the fears of being forced into early retirement or of becoming redundant. However, at the same time, 79% of respondents felt that they would prefer working harder than they would working fewer hours
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for less pay. The number is a positive indication of work ethic, but perhaps most importantly, compared to the 79% overall figure, 86% of young people said they’d rather work harder than work fewer hours and get paid less. The way Standard Chartered measured ‘young’ for this survey was all people between the ages of 18-34. At the same time, at least 80% of young people in the survey said that they were confident their digital skills were going to help them thrive in the post coronavirus world. Similarly, only 65% of people are looking to add a second income stream to make more money, while in the young demographic, 72% of people said they were actively looking for another source of income. The demographic also showed more entrepreneurial zeal, with 54% saying they were looking to start a new business. In comparison, the overall number of people looking to start a new number was only 46%. Naturally, with the desire to start new businesses or find other means of making money comes the need to learn or acquire new skills. At least 74% of young people said they were looking to retain or learn new skills, compared to only 64% for the rest of the population, as well as 87% of young people saying they would use more technology in the future. However, it must be remembered that while they are optimistic about the future and what they can do with it, this demographic of young people have also been badly affected by the global recession caused by the virus. In fact, they have been affected more, with 36% of young people seeing an income drop compared to the one third of people that saw an income drop overall. In Pakistan, the numbers are closer to half. Because of this, there seems to be a great desire to better manage money, particularly within the young population. Among young people, 81% said they were looking for ways to better manage their money, compared to only the 77% of people who said the same overall. And banks like Standard Chartered know that they will have a role in helping young people manage their finances better, and that role will only become more important if they end up
doing even better in the post pandemic future. “Young people around the world have been hit particularly hard by the economic impact of the pandemic,” says Ben Hung, CEO of Retail Banking, and Wealth Management and Regional CEO for Greater China & North Asia at Standard Chartered. “Many are in insecure employment or graduating into a tough job market. Yet their confidence, adaptability and willingness to work hard, especially in fast-growing markets, provides hope for the recovery." “Many are considering starting a new business in the wake of the pandemic but want to learn how to manage their finances better. They must be supported. Banks have a role to play both by helping them manage their money and providing tools that make banking easier so they can focus on leading the way to recovery.” This, and all of the other findings, will be particularly important in Pakistan. Why? Well, because Pakistan has a very large young demographic. In fact, one of the reasons experts are giving for Pakistan’s relevant success in curbing the virus has been a young population. With nearly three quarters of the population less than the age of 29, Standard Chartered will have a major opportunity. “Pakistan is a country with a young and vibrant population, and it needs to make space for them to play an active part in the future development of the country,” says Ms. Khadija Hashimi, Head of Corporate Affairs and Brand & Marketing, at Standard Chartered Pakistan. “With 70 percent of the population younger than 29, Pakistan’s vibrant youth are eager to engage with a dynamic, open mind to resolve problems. The current pandemic has enabled us to understand that adopting Digital technology will be a game changer for the country.” “Digital transformation coupled with building an active entrepreneurial ecosystem, will provide opportunities for creating new jobs and helping exploit the untapped potential of the society. Financial institutions and especially Banks need to step forward and provide guidance and support to make people understand how to make better and more productive use of their money.” n
PANDEMIC